Week 4 Flashcards
Who places the contract between an insurer and reinsurer?
A broker
What is retrocession?
When a reinsurance company shares the risk with an insurance company (for example is a reinsurance transfers risk for an insurance to another reinsurance company)
What is currency congruent hedging?
A way to mitigate risk with currency exchange, the companies entire cash flow will go through the same currency.
Explain the risk sharing and loss payments to retrocessioanire
An insurance group will pay a reinsurer who will pay a preiumum to a retrocessionaire whom will pay for losses to a reinsurer and the reinsurer to insurer
When a reinsurer pays premium to retrocessionaire, who are they really paying?
Another reinsurer
What is the invisible Hand of insurance and warning sign?
Information between insurer and reinsurer is passed to each other before customer. A change in a reinsurers behaviour is an early warning sign.
What is underinsurance?
When the policy does not cover the entire financial loss that could occur and so you would be financially responsible for a portion.
Why might an insurer buy reinsurance internationally?
Because it helps spread the risk if there was a higher chance geographically of a natural disaster such as an earth quake
What is meant by loss spreading increases insurability?
It means by spreading risk over a number of policy holders, insurance becomes more affordable
Why might an earthquake be a disaster for insurance?
The sheer amount of claims at one time.
What are some questions which may arise with an insurer when picking a reinsurer?
What are the risks covering, what is the depth of the risk, how much will we be paying, are the premiums for a longer or shorter term risk.
A reinsurer takes a large proportion of risk, why?
Because the reward is far greater the higher the risk that they take.
What is quota share?
When insurer and reinsurance share premiums and risk. For example insurer may take 40% and reinsurer takes 60%
Assume the total premium is £10,000. If there’s a loss of £500,000, how would the losses and premiums be shared between the insurer and reinsurer?
Well this depends on the quota share. if there is a 50% then insurer and reinsurer would match each other
If an insurer pays 10k and reinsurer goes to 40k but it costs 60k, where does the 10k come from?
its non proportional loss, meaning there will be a pre arranged cap, the reinsurer will often pay the extra 10k due to the cap however this is not profit for the insurer but a pre arranged cap cover.
